Situations when a tariff and a quota are not equivalent, International Economics

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Q. Economic theory in general and trade theory in particular are replete with equivalencies. For illustration, it is argued that for any specific tariff one can search an equivalent ad valorum tariff; and that for any quota one can evaluate a tariff equivalent. Show conditions or situations under which a specific and an ad valorum tariff are not equivalent. Show conditions or situations when a tariff and a quota are not equivalent.

Answer: Example during a period of price inflation an ad valorum tariff would become increasingly more effectual. The government doesn't receive any of the quota revenues unless the import licenses are auctioned or sold.


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